Three months have passed since Walgreens and Alliance Boots agreed to begin the process of merging their companies, their executive staffs and their considerable talents to create what will ultimately become the first truly global drug retailer/wholesaler. In that time, more misconceptions have surfaced than has been the case with any previous transaction involving two drug retailers.

Walgreens, Alliance Boots get to work

September 24th, 2012

by David Pinto

Three months have passed since Walgreens and Alliance Boots agreed to begin the process of merging their companies, their executive staffs and their considerable talents to create what will ultimately become the first truly global drug retailer/wholesaler. In that time, more misconceptions have surfaced than has been the case with any previous transaction involving two drug retailers.

To clear up the confusion, what follows are five things this merger is not about.

• Walgreens will not open any drug stores in markets where Boots already has a strong and dominating position. Put succinctly, Boots already operates drug stores throughout the United Kingdom and in many parts of Europe, as well as Asia. So saying, it would make no sense for Walgreens to enter these markets with retail drug stores.

• Boots will not be opening any drug stores where Walgreens already has a dominant presence. In other words, what Boots is to U.K. and European drug store retailing, Walgreens is to U.S. retailing. Enough said.

• Walgreens staffers will not soon, or at anytime in the foreseeable future, be working permanently on Oxford Street in London. Nor will Alliance Boots personnel relocate to Deerfield, Ill. This is not a case of one company taking control of another. Rather, it is a partnership, a situation wherein two companies are joining forces to share the best practices of each with each other.

• Observers will see very few changes at either company over the next year. Rather, this initial year will be an exploratory period during which the two companies’ senior staffers will share information and ideas, learn about each other and determine how the strengths of each individual and company will benefit the other.

• Neither company will send staffers to the other company’s location for an extended period of time. Rather, both companies have appointed members of teams whose job it will be, during the coming months, to swap secrets and determine where to deploy the resources of each to improve the performance of the other. As stated, this is a true partnership — and the hope at both companies is that, in the end, one and one will equal three.

Now, here are five things that will happen — maybe not today and maybe not tomorrow, but soon.

• Walgreens’ pharmacy system will become Boots’ as well. As is generally known, Walgreens operates one of the chain drug industry’s most sophisticated pharmacy systems. Boots does not. So elements of Walgreens’ system will soon begin appearing at Boots drug stores throughout the U.K. — and eventually elsewhere.

• Boots’ extensive and impressive assortment of own-brand merchandise will shortly debut at selected Walgreens drug stores throughout the United States. Foremost among these will be the retailer’s No. 7 beauty brand, England’s biggest seller in the cosmetics category. Other brands will follow shortly, for a simple reason: Boots is a world-class retailer when it comes to private label.

• Walgreens will begin utilizing the considerable expertise Alliance Boots’ wholesaling arm has brought to the supply chain function throughout Europe and Asia, where it is the No. 1 drug wholesaler. Though the two companies have not yet determined what initial steps will be taken to alter distribution at Walgreens, it has already become clear that the U.S. retailer has much to learn in this area from its U.K. counterpart. So, too, does Alliance Boots stand to learn much from Walgreens’ strong relationships with both its pharmaceutical and front-end suppliers, with which the U.S. retailer has developed some of the strongest partnerships in mass retailing.

• Alliance Boots will make available to Walgreens its extensive line of generic pharmaceuticals. Here again, it’s early days — but both parties clearly realize that considerable efficiencies and cost-savings opportunities are available to Walgreens by utilizing Alliance Boots’ generic pharmaceuticals.

• The top-management teams at each organization, acknowledged as among the most talented and experienced in all retailing, will work closely together to reach decisions and collaborate on programs with the goal of benefitting both companies. Initially the senior Walgreens staffers most closely involved will be CEO Greg Wasson and CFO Wade Miquelon, while the Alliance Boots equivalents will be executive chairman Stefano Pessina and Ornella Barra, chief executive of the company’s pharmaceutical wholesale division. From there cooperation will trickle down throughout senior management at both companies and, within a year, the fruits of that collaboration will begin to influence both companies — in very meaningful ways.

A final thought: The combination of Walgreens and Alliance Boots clearly has the potential to be the most significant event ever undertaken in the annals of drug store retailing and wholesaling. The feeling here is that that potential will be realized.

Indeed, so strong do we believe in the ramifications of this merger that the October 8 issue of Chain Drug Review will largely be devoted to explaining and interpreting this landmark event.